Title: Does market sentiment affect IPO pricing?

Authors: Cynthia J. Campbell; Yan Du; S. Ghon Rhee; Ning Tang

Addresses: Deceased, formerly of: Iowa State University, Ames, IA, 50011, USA ' Mellon Investment Corporation, BNY Mellon, San Francisco, CA, 94105, USA ' Shidler College of Business, University of Hawai'i, 2404 Maile Way, Honolulu, HI, 96822-2282, USA ' Lazaridis School of Business and Economics, Wilfrid Laurier University, Waterloo, Canada, N2L 3C5

Abstract: Sentiment has been proposed as one of many possible explanations for initial public offering (IPO) underpricing. In this paper, we explore the role of market wide sentiment in IPO pricing before the start of secondary market trading. We find that the IPO initial filing price multiples are higher when the level of sentiment is higher. Interestingly, the level of sentiment does not appear to affect the IPO final offer price multiples. Instead, changes in sentiment have a significant impact on the final offer price multiples. Additionally, we find that underwriters with a higher reputation tend to incorporate the change in sentiment more aggressively than underwriters with a lower reputation.

Keywords: IPO; initial public offering; IPO pricing; sentiment; underpricing; underwriter reputation.

DOI: 10.1504/IJBAF.2024.139370

International Journal of Behavioural Accounting and Finance, 2024 Vol.7 No.2, pp.214 - 232

Received: 25 Apr 2023
Accepted: 31 Jul 2023
Published online: 01 Jul 2024 *

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